Last month, Transpacific Industries Group Ltd (ASX: TPI) appointed a new Chief Executive Officer, Vik Bansal. Mr Bansal will replace Bob Boucher, who resigned just 18 months into the job, saying that he had to return home for "personal reasons".
The new CEO will certainly have his work cut out for him as Transpacific's share price just hit its 52-week low.
The question is, "Does this provide investors with a good opportunity to buy?"
A quick look through the company's 2015 half-year report shows revenues were down by 31% for the corresponding period last year. Earnings before interest, tax, depreciation and amortisation (EBITDA) were down 37%, and net profit after tax (NPAT) was also down 47%.
That's the bad news, but here's the good news for Transpacific.
Take a look through the annual reports of Transpacific for the past four years and you'll see that:
Its free cash flow is positive
| Amounts in Millions | 2011 | 2012 | 2013 | 2014 |
| Operating C/F | 254 | 270 | 282 | 223 |
| Capex | (149) | (180) | (164) | 963 |
| Free Cash Flow | 105 | 90 | 118 | 1,186 |
It has a strong balance sheet
| Amounts in Millions | 2011 | 2012 | 2013 | 2014 |
| Debt | 1,490 | 1,128 | 1,053 | 53 |
| Equity | 1,584 | 1,896 | 1,750 | 1,800 |
| Debt to Equity Ratio% | 94 | 59 | 60 | 3 |
Competitive advantage
Although the waste management industry in Australia is largely fragmented, it is dominated by five major operators. Transpacific is the market leader with an estimated 20% market share, followed by SITA, Veolia, JJ Richards and Remondis.
Competitive advantages in waste management are built from scale. An industry-leading landfill network is difficult for other waste service providers to replicate. Since the challenges of landfill ownership create significant barriers to entry because of high-fixed operational costs, and regulatory hurdles, industry players who control the greatest amount of landfill assets command pricing power.
Transpacific has recently acquired the Melbourne Regional Landfill business from Boral Ltd (ASX: BLD)
To further solidify its competitive advantage, this acquisition secures Transpacific's long-term position in the Melbourne market by delivering on an integral component of the overall growth strategy of increasing internalisation rates (collected waste delivered to its own sites rather than to third parties) for its Melbourne operations, which will drive enhanced cash flow and higher returns.
Divesting non-core assets
Transpacific has done a great job of divesting a number of non-core assets, including its Commercial Vehicles, New Zealand and Manufacturing Plastics businesses. This will allow the company to focus on growing revenues in its core assets, particularly in the Cleanaway Commercial & Industrials area where it has lost market share over the past few years by not taking full advantage of revenue growth opportunities.
Focus on "tuck-in" acquisitions
The company also has an ongoing focus on implementing a series of "tuck-in" acquisitions. These types of small acquisitions, targeted at where it currently has its route infrastructure in place, allow Transpacific to further improve route efficiencies and increase margins. It is currently assessing a number of opportunities in this area.
Verdict
The outgoing CEO, Robert Boucher did do a great job of restructuring Transpacific and reducing its debt levels. It's now up to the new CEO, Vik Bansal to maintain this strategy of cutting costs, lifting service levels through improved route efficiency, increasing its landfill capacity, and continuing to divest non-core assets.
If he can, then Transpacific will be a good investment at around its current price levels.
